Exchanging fixed costs for variable costs in IT

With the recent threats of a recession, it seems to me that more companies will be interested in changing out much of their flat fixed costs for variable costs in the IT department. This makes a lot of sense and prepares companies to be more flexiable in a less stable business environment.

Spitfire (www.spitfiregroup.com) has pioneered some very innovative ways to help companies manage their IT projects in a maore variable manner. Some of the benefits of these methods include:

1. The ability to throttle back on IT costs for short periods of time, or quickly when the revenues are not tracking with the costs of the company

2. The ability to throttle up for short periods of times when a critical or strategic need arises.

3. Where a firms technology needs may help them jump ahead of a competitor, or an entreprenuerial opportunity is identified where certain technology requirements are necessary

4. More reliable or timely delivery of business value needs to be achieved for a less risky cost.

We've heard some critics argue that they wanted a full time staff for everything and that consulting costs, or variable resource costs, are too expensive but in most cases this proves to be a misconception. Common myths are:

1. "I need full time people who undersatand the history of the systems". In this case, those people are often just as likely to leave as stay and they tend to have settled into patterns that may not provide for the most effective use of resources. In every case I've been involved in, those with the "history" were more interested in promoting that myth in order to save their own skin rather than promote a better way of dealing with technical challenges.

2. "Outsiders don't understand my business". This certainly may be true, but you might be surprised to find out how consistent technology issues are between businesses. Even businesses in different industries.

3. "Consultants are expensive". They can be but expenisve is relative. If you are paying them to get a project done, that project has a beginning and an end. The cost is variable based on that project. If you are paying a whole department of people (a fixed cost), you are also paying for all of the overhead of managing that department. All of the HR issues, politics, payroll issues, etc. In other words you are paying for many things other than the technical business functionality that you need to serve your customers better.

To make my point even clearer, I recently had lunch with a CEO friend of mine that told me he would never again have an IT department, that he would use consultants for everything. His reasoning was if I have a project that I'm trying to accomplish and its not getting done by the itnernal department-my discussion with that department is much different that the discussion I have with an external consulting firm. His thought was that internally he has to manage people, externall y he only has to manage value-he would rather manage the value. I think most business managers would prefer to focus on the business issues.


Since